I have investments in several US companies from my UK Freetrade account. I went through the W8-BEN process via the app when buying my first US stock.
I know the W8-BEN sorts out the US tax side of things, but not sure about UK tax on such shares? From reading I can see that Stamp Duty Reserve Tax (SDRT) is paid automatically on UK shares, but do I need to pay anything to HMRC like SDRT for US shares?
I just want to get my tax affairs in order so I don’t receive any penalties further down the line. Additionally, do I need to “renew” or fill out again the W8-BEN in the US at any point?
There’s no stamp duty on US assets. The W8-BEN reduces the amount of US withholding tax from 30% to 15%. You only need to complete it once, though if your US citizenship status changes in the future you will need to inform every broker through which you have completed the form.
You still need to pay UK dividend and capital gains taxes on US stocks if you go over the allowances, which are currently £2,000 and £12,300 respectively. You can avoid these taxes by holding the shares in an ISA.
You usually don’t need to report your capital gains and dividends if they are below the allowances but there is an exception if the total amount of share sales is more than four times the allowance even if your total gains are within the allowance. @Conladx gave a good example of how this works here:
The government guidelines on reporting and paying capital gains and dividend taxes are here:
Be aware that on some high dividend yield US stocks there is no reduction in US tax and the tax is US withholding tax can be up to 33%. I found out to my cost on Enterprise Product Partners (EPD) so what appears to be a high yield intially does not look so attractive when you tale one third off ! There are others too so it pays to check out each position before investing.
I’m not sure. There are others where the Tax charge is 25% and that is what you pay as a UK investor . I actually checked the tax on EPD and it is actually 37% !
It is obviously down to the US Tax authorities on an individual basis.
You definitely need to read up a little about capital gains tax (and grammar etc.).
The allowance is 12.300£ per tax year. So if you make a less than that £ profit, you don’t need to pay any tax.
Tax is never taken, you need to declare it yourself anyway. Freetrade just takes a conversion fee from dollar to pound and vice versa.
Your 12.300 capital gains tax allowance is separate from your income tax allowance, so you wouldn’t pay any tax unless you either made more than that in profit, or you had other capitals gains elsewhere that used up your allowance
Hey @Groovy57, How did you find out the tax on EPD was 37%? I was recently caught out by this myself. Did you just calculate the percentage difference between the dividend received and what was expected? or is there a site to look this up?
I used to have my brokerage account with Selftrade and they used to give a detailed breakdown of dividends received and that included the % withheld due to US tax rules. I’m not exactly sure why the withholding tax is different for some companies. I suspect its down to their tax structure. I guess if you wanted to enquire what the withholding tax is applied the broker should be able to give you that info before you invest.
Hope that helps.